DEALBOOK; Record Fine Drags Down HSBC’s Annual Earnings

By JULIA WERDIGIER

Published: March 5, 2013

1:49 p.m. | Updated

LONDON — HSBC, Britain’s biggest bank, said on Monday that its net profit fell 17 percent last year because of a record fine to settle money laundering charges and changes related to the value of its debt.

Profit fell in 2012 to $13.5 billion from $16.2 billion a year earlier, failing to meet analysts’ expectations. The bank also missed its own target of return on equity of 12 to 15 percent, recording only 8.4 percent on the measure last year. Its shares fell 2.5 percent in London on Monday.

Despite the drop in earnings, HSBC disclosed Monday that 204 employees were each paid more than £1 million, or about $1.5 million, last year, compared with 192 who received more than £1 million a year earlier. The bank cut its bonus pool to $3.7 billion in 2012 from $4.2 billion across the entire company but slightly increased the amount it set aside to pay its investment banking staff.

The bank’s chief executive, Stuart T. Gulliver, earned a total of $7.4 million last year, including benefits, pension and an annual bonus of $1.95 million, compared with $8 million a year earlier.

Douglas J. Flint, HSBC’s chairman, said in a statement that last year was “a difficult one for all at HSBC as we addressed the restructuring of the firm against a lower-growth economic backdrop and with legacy issues and regulatory challenges imposing a further set of imperatives.”

Mr. Gulliver added that he expected the market environment to remain “difficult,” but that HSBC would benefit from growth of the economies in China and the United States even if European markets continued to struggle.

To fulfill his pledge to increase profitability, Mr. Gulliver took the bank out of some markets, sold business divisions and eliminated jobs. HSBC has closed or sold 46 businesses and investments since 2011, including four this year. The bank sold its stake in Ping An Insurance of China for $9.4 billion and sold its credit card unit in the United States to Capital One Financial for $2.6 billion. HSBC also sold its unit in Panama to Bancolombia for $2.1 billion last month.

In December, HSBC agreed to a record $1.92 billion fine to settle charges with United States authorities that the bank breached rules against money laundering, including that it handled money transfers worth billions of dollars for countries under United States sanctions.

The bank has also had to set aside money to pay clients who were improperly sold some financial products. “The level of complaints received was higher in volume and over a more sustained period than previously assumed,” the bank said in its earnings report. HSBC had to set aside more than $2 billion to compensate customers, which prompted its British operations to report a loss for last year.

HSBC, based in London, generates more than half of its profit in Asia. Growth in China has helped the bank compensate for shrinking or slower-growing income in Europe since the beginning of the financial crisis. Europe was the only region where HSBC’s earnings declined last year.

The bank said it had made solid progress on gradually reducing the size of its consumer lending and mortgage portfolio in the United States. HSBC’s fastest-growing business last year was its retail banking and wealth management operation.

HSBC added that it planned to increase the first three interim dividends this year by 11 percent.

This is a more complete version of the story than the one that appeared in print.